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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 7 posts in Forum Selection.
Court of Chancery Invalidates Federal Court Forum-Selection Provision for Securities Cases
Sciabacucchi v. Salzberg, C.A. No. 2017-0031-JTL (Del. Ch. Dec. 19, 2018)
Delaware law permits a Delaware corporation to include a forum-selection provision in its certificate of incorporation governing all “internal affairs” claims by its stockholders. There is much national debate on the topic of forum-selection provisions in charters governing securities claims, such as whether a corporation can require arbitration. This decision wades into that debate by addressing a charter provision mandating a federal forum for securities claims. In it, the Court of Chancery holds that the Delaware General Corporation Law (the DGCL) does not authorize a Delaware corporation to include a forum-selection provision in its charter governing claims under the 1933 Act. The Court reasons that claims under the Act are external to the corporation—they do not “turn on the rights, powers, or preferences of the shares, language in the corporation’s charter or bylaws, a provision in the DGCL, or the equitable relationships that flow from the internal structure of the corporation.” Because the claim exists outside of the contract between the corporation and its stockholders and does not relate to the corporation’s internal affairs, it is beyond the power of state corporate law to regulate.
ShareCourt of Chancery Explains Anti-Suit Injunctions
Village Green Holding LLC v. Holtzman, C.A. No. 2018-0631-TMR (Del. Ch. Oct. 5, 2018)
This decision provides an excellent summary on Delaware law concerning when the Court will enjoin litigation in another jurisdiction to enforce a contract’s forum selection clause, as the Court did in this case. It also notes a potential trap for the unwary in situations where the clause selects only a court lacking jurisdiction to hear the dispute, rendering the forum selection invalid. That may occur for Delaware forum selection clauses when the Court of Chancery is the sole selected forum but cannot hear the dispute because of its limited subject matter jurisdiction. To avoid that problem, it would be best to identify an alternative within the jurisdiction, or accept any court within the jurisdiction.
ShareDelaware Superior Court Explains Impact Of European Data Rules On Forum Motion
Under the Cryo-Maid decision, a forum non conveniens motion must consider the impact on a defendant forced to litigate in Delaware when discovery is needed in a foreign land. Here the Court considered the impact of the recent amendments to the Italian Data Protection Code on discovery and found that it did not impose an undue hardship under the facts present in this case. This may become more important as those European laws on privacy protection start to be considered for their effect on litigation outside of the EU.
ShareCourt Of Chancery Stays Control Dispute Involving Kentucky Retirement Systems In Favor of Kentucky Plenary Action
In Re Bay Hills Emerging Partners I L.P., C.A. No. 2018-0234-JRS (Del. Ch. July 2, 2018)
This decision deals with the oft encountered problem of a race to different courthouses by counterparties. What makes this decision readworthy is the context: a summary control dispute involving a Delaware alternative entity, one invested in by a Kentucky state agency (Kentucky Retirement Systems). While the Court of Chancery may choose to not stay its hand in favor of even an earlier-filed plenary action in the control dispute context, that is by no means a blanket rule. This is an instance where the Court of Chancery cited its inherent discretionary authority to issue a stay sua sponte in the interests of comity and the orderly and efficient administration of justice. Among the factors supporting the Court’s decision to stay its hand in favor of a contemporaneously-filed plenary action involving the same parties and issues in Kentucky state court were Kentucky consent-to-forum and choice of law clauses in the parties’ contract.
ShareDelaware District Court Finds That Controlling Stockholder Claim Falls Outside Of Forum Selection Bylaw
Anderson v. GTCR, LLC, C.A. No. 16-10-LPS (D. Del. Sept. 29, 2016)
Forum selection bylaws are a powerful tool for companies to avoid the burdens of multi-forum litigation. But those bylaws only cover the claims falling within their terms. Where, as here, the bylaw only covers fiduciary duty claims against officers and directors, the bylaw will not be enforced for a fiduciary duty claim against a controlling stockholder.
ShareCourt of Chancery Explains Some Consequences For Violating Forum Selection Agreement
CMS Investment Holdings LLC v. Castle, C.A. 9468-VCMR (August 19, 2016)
This is a significant decision because it explains how filing suit somewhere other than in the contractually-designated jurisdiction does not toll the time to sue in the proper jurisdiction. Hence, if the improperly-filed suit is dismissed, it may be too late to bring suit in the proper jurisdiction.
ShareThe Court of Chancery Declines to Disturb Company’s “Waiver” of its Forum Selection Bylaw to Settle Derivative Action in California
Many Delaware companies have adopted forum selection bylaws that prevent their stockholders from bringing internal corporate claims in courts outside of Delaware. These bylaws are a valid and effective tool for limiting duplicative stockholder litigation filed in multiple jurisdictions. The Delaware courts have authorized their use and the Delaware General Assembly validated them under Section 115 of the Delaware General Corporation Law. Numerous other courts have also enforced Delaware forum selection bylaws.
Although these bylaws specify Delaware as the exclusive forum, they often permit the company to waive its right to Delaware as the exclusive forum and consent to a different venue. While even the seminal Delaware decision on forum selection bylaws, Boilermakers 154 Retirement Fund v. Chevron, 73 A.3d 934 (Del. Ch. 2013), approved of bylaws that permitted such a waiver, to our knowledge no court has addressed whether a company may properly waive its right to Delaware as the exclusive forum under a forum selection bylaw and consent to venue elsewhere. That is, until Niedermayer v. Kriegsman, C.A. No. 11800-VCMR (Del. Ch. May 2, 2016) (Montgomery-Reeves, V.C.). More ›
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